National versus Regional Cost of Production
S1645 the Federal Milk Marketing Improvement Act of 2009 provides for one national
minimum price for manufactured milk based on the national average total economic
cost of production as calculated by the Economic Research Service (ERS) of the USDA.
Currently there is one national milk price which changes every month on both Class
III-cheese and Class IV-butter and non-fat dry milk. These prices are the starting
prices for all milk. Class II price is the Class IV price plus an established
differential. Class I price is the only class price that varies according to
location. Because of differences of class utilization in different areas the pay
price may vary $3 to $4 per hundredweight in different regions of the country. For
example: Wisconsin has about 80% Class III utilization and only about 16% Class I
utilization while Florida has over 80% Class I utilization. Florida also has a much
higher Class I differential than Wisconsin does. Some states also have established
higher Class I (fluid) prices than the federal minimum usually referred to as over
order pricing.
S1645 does not change these regional differences except that all manufactured milk
will be classified as Class II. S1645 does not prevent states or groups of states
from setting higher Class I prices. There was intense discussion during the draft of
S1645 on whether to have regional pricing for manufactured milk since costs do vary
significantly. Here are a few reasons why we did not feel that regional prices on
manufactured milk would work. The old industry sarcastic question “Who’s cost of
production?” National average is easier to defend. Costs vary widely even with equal
management within the same region. For example: my farm has poor to moderately
drained clay soil in hilly terrain, seven miles away there are farms that have well
drained river flats that can yield twice the crops as my farm. Southeastern PA
cropland is very rich and virtually stone free while most of the northern part of PA
has much poorer, stony soil, steep terrain and a much shorter growing season. Regions as currently mapped by the USDA have the highest
cost dairy region, Eastern Uplands, bordering the lowest cost, Prairie Gateway. How
would you like to be two miles on the wrong side of the dividing line and get
$13.05 per cwt less than a farm three miles away. (2008 figure $31.69 Eastern
Uplands and $18.64 Prairie Gateway) Another major drawback deals with interstate
commerce headaches of a complicated national pooling of manufactured milk prices
where farmers from low cost regions would essentially pay into the pool and farmers
from higher cost regions would take from it. We saw this as politically divisive
and unsavory for farmers whose base pay price would be much lower than some others.
It seems that regional prices for manufactured milk might be unworkable. However,
fluid prices are more locally or regionally oriented and this would not change with
S1645.
What would happen with S1645 is a consistant milk price considerably higher than
they have averaged in the past. This is the only plan or bill that would
significantly raise farm milk prices.
Gerald Carlin, Dairy Farmer, Pennsylvania, co-author of S1645
www.supports1645.webs.com